Pollution Haven Hypothesis: Smooth Quantile Evidence from BRICS

Abstract

Pollution, like everything else, can be carried along with globalization. This approach, which refers to the pollution carried by the capital, is the pollution haven hypothesis. This study investigates the effects of foreign direct investment (FDI) on carbon dioxide (Co2) emissions in the BRICS countries from 1992 to 2020. We employed the instrumental variables smooth quantile regression (SIV-QR) method, which is novel in panel econometry. We found that per capita income has an increasing effect on carbon emissions in all estimators with all quantiles. In addition, our findings indicate that FDI flows have a decreasing effect on Co2 in high quantiles. However, the FDI plot estimates of the simultaneous quantile regression show that this has an increasing effect in low quantiles. This means that, at low quantiles, the pollution hypothesis is valid. This can help uncover possible relationships between the routes of money and carbon dioxide emissions.